Internet Protocol Television (IPTV)

by Rachel M. Ward

Overview

The cable and telephone industries have taken advantage of advances in technology, transformations in federal regulation, and changes in consumer perceptions to compete with each other in new ways.

Cable companies can now provide high-speed connections to the Internet, increased television programming choices, and, in some areas, local and long distance phone services that utilize infrastructure initially created to provide cable television services 30 and 40 years ago. Chagrined by this encroachment, telephone companies are investigating how they can compete with cable companies by providing video programming services to consumers.

Cable’s ability to provide phone service has set off alarms in the corporate offices of telephone companies. While local phone service boasts limited profitability, in part due to the Federal mandate that it must be provided universally, wired telephony is still a key element of telephone company portfolios.[1] Worried about threats to their core business, phone companies are searching for ways to increase the number and variety of services that they provide. “Broadband” high-speed Internet via digital subscriber line (DSL) is one such service. Another service, the focus of this discussion, is what the industry has termed “TelcoTV” (telephone company TV) or “IPTV” (Internet protocol TV).

How it works?

Beginning with the digital revolution and steps toward telecom deregulation by government in the 1990s, media and telecommunication companies have increased the number of services they can aggregate and deliver to consumers. Such partnerships have become the dominant financial model for many providers.[2] This phenomenon is known in telecommunications industries as “triple play,” a concept referring to a consumer’s ability to receive one bill for a number of services, including phone, television programming and Internet access.

Achieving triple play is simpler for cable companies than for phone providers because its coaxial (coax) cable infrastructure can carry more information more quickly than the twisted copper pair technology of the phone operators. Cable finds it easier to move in the direction of providing phone over its Internet service (voice-over-IP) with a robust infrastructure that can support voice services “as is.”

The telcos’ lower capacity infrastructure is a limitation, but is not insurmountable. In their old analog incarnation, copper wires have little bandwidth, as is evidenced by the difficulty dial-up Internet users have downloading or streaming audio and video files. However, when these lines are digitized and the distance from a subscriber’s home to the modem at the central office is shortened, access speeds can be greatly increased.[3] This development allows twisted pair copper via DSL (digital subscriber lines) to convey substantially more information as data, opening up the possibility of providing video content. Coupled with the commitment from phone companies to rely on high-capacity fiber optic lines for trunk communications, DSL in the local loop will allow increases in transmission speed and capability. This increased capacity will mean that phone companies can now provide the missing element of triple play: video programming over DSL or fiber lines in a service called IPTV.

Background

IPTV is named after the method by which video information is transported across the Internet, TV over Internet protocol. IP functions by breaking up information into separate pieces, called packets, that travel on Internet lines, arriving by different routes and at slightly different times, being rearranged at its destination to present a whole to the user.[4] Because electronic information travels at the speed of light, this breaking up and reconstitution of data is generally not detectable to users.

There are some industry analysts that argue that IPTV is any video signal that is sent using Internet protocol, so that any material that is accessed via a personal computer falls into this category.[5] Time Warner Cable quietly began testing a type of IPTV PC service among its San Diego subscribers in July of 2005. However, this definition of IPTV is not part of the present discussion; rather the focus is on IPTV as it is being advocated and implemented by telephone companies, as TelcoTV.

Figure 1 below demonstrates some of the key components of an IPTV system. Highlighted in the blue box on the left is the content provision side of IPTV. Content for programming is received from satellite, archival or local sources. It is then stored in local nodes, such as the central office of the phone company, and called up by users at home. At the local site, this content is “IP encapsulated,” that is, converted to a packet format and encrypted (below, in red). The data then travels across the copper wire infrastructure of the local phone company (marked with a yellow line) to households that have DSL service and that subscribe to IPTV. At the home of a user (marked in green), content is brought to the television set using a set-top box (STB) that decrypts the signal and assembles the packet information sent over the DSL line into a viewable program. As the diagram demonstrates, the DSL line will also provide Internet access on the home PC even while the line is being used for video service.

Figure 1: Telecommunications IPTV system solution (Yuxing) [6]

Home users increasingly rely on fast connections. According to Nielsen/NetRatings, 42 percent of the U.S. population has access to a broadband Internet service, while 38.7 percent of active Internet users rely on a dial-up, or “narrowband” connection. While these percentages may not be far apart at this moment, the narrowband trend is declining. American broadband usage rose 16.4 percent in 2005, while dial-up usage dropped 11.5 percent.[7]

Video requires a good deal of bandwidth to deliver an image that does not skip or look jumpy. The rise in broadband adoption puts telephone companies in a good position to provide video as well as telephony and Internet services to their customers. Nevertheless, the already-established broadband technologies of the cable operators in the U.S. may make customers more willing to embrace their services. As video providers, cable companies have been field-testing video-on-demand and digital video recorders, effectively conditioning the market so that consumers are more educated about using their television to “order” programming or store it on a home device for later use.

The idea of accessing programming “on demand,” without the user having to run out to the video store or search for a tape on which to record a program, is already widely adopted in the cable industry. So the telephone operators are playing catch up. On-demand video seems a likely model the telcos will use to promote themselves as video providers to potential subscribers and investors.[8]

Applications

Video on-demand (VOD) allows users to browse a library of available material from a menu on their television screens using a remote control. Such content can include movies, special events, episodes of television programming, or segments of shows made available by the creators. All of this material is essentially “canned,” stored in a distant video server to be delivered to a viewer’s television when requested. This model differs from pay-per-view (PPV) in that video for PPV is sent to one’s television regardless of whether or not it is ordered; the act of ordering a program is actually one of decrypting it so that it can be viewed. In this sense, PPV is like the train in a public transportation system: during the system’s hours of operation, the trains will come and go whether or not there are passengers who need them. VOD is like calling a cab, it operates on the user’s timeline, not one that is predetermined by the operator.

Like calling a cab, VOD may be slightly more expensive, but it is still a minimal cost compared to buying a car or buying a library of movies and other content to be viewed at one’s discretion. With VOD, the library of material is kept at a central location – in cable, on a computer server at the cable headend, and for a telephone company, at the local central office. Users can choose to order single items for viewing, or subscribe to unlimited programming at a monthly rate, depending on provider offerings. Because the video is delivered over a closed network, whether via phone or cable, it is more secure than video that is broadcast or called up over the Internet.

VOD lends itself to being provided over the phone company’s copper wire because, unlike cable’s fashion of broadcasting hundreds of channels at a time that users flip through to find programming, its material is requested for transmission on a dedicated circuit. Individual users determine the material they want to seat that moment. As a result, the phone company only sends the episode of The West Wing that was requested by the residents of 123 Maple Leaf Drive, making this approach a much more efficient use of bandwidth. In contrast, cable companies are providing all their channels at once to all residences served.

While most television receivers are currently sold “cable-ready,” there is not yet a manufacturing market for “IPTV-ready” televisions. In order to view IPTV on a standard TV, a consumer would first subscribe to an IPTV service from a local provider and then purchase, rent, or borrow a set-top box. The set-top box allows the user to order and receive programming. Set-top boxes are just one element of a complex mix of components that will have to be pulled together to create an environment amenable to widespread adoption of IPTV. Operating systems for the set-top boxes, content aggregation and distribution from the phone companies, and social factors related to a new style of television viewing must all be addressed in order for this model to emerge as a successful competitor to cable and satellite services.

To review, there are three essential components to IPTV:

Promotion and Integration

While there are currently between 130 and 150 small, independent companies in the U.S. providing some type of video over broadband,[9] interest from major telephone companies has been concentrated in two companies. SBC Communications and Verizon each have IPTV initiatives to complement their telephone and Internet offerings, each is going at it from slightly different angles.

There are basically two ways to increase the amount of data that can travel to a home over phone company infrastructure. The company can install more network nodes, shortening the distance that data must travel from the gateway to the Internet to the home, or it can increase the capacity of its lines by installing fiber optic cables. Fiber optic cables have an enormous capacity; they can deliver 500 channels of high-definition television all at once.[10] As the cost of using fiber optics lessened in the 1990s, more phone companies began to use them as trunk lines to transmit data between cities, and to feed its services deeper into neighborhoods.[11] Both SBC and Verizon have recognized that laying fiber to the curb or directly to the premises will be key in competing with cable for a triple play offerings. Verizon has been most aggressive in laying fiber, billing its initiatives as a boon to small and medium-sized businesses.[12]

Now bringing fiber to homes and businesses in 15 out of the 28 states that it serves,[13] Verizon is clearly banking on high capacity lines to compete with cable companies, more for Internet access business than for video business. Verizon spokesman Eric Rabe has said, “We … think that IPTV is not ready for prime time yet.” Instead, the fiber optic cables running to Verizon residences will deliver standard digital cable service with on-demand movies being the only component delivered using IPTV technology, rather than a full IPTV programming stream.[14]

SBC is spending $4 billion to create the first true IPTV network, and plans to initiate services in early 2006. The company is foregoing the fiber to the premises investment for the time being,[15] focusing instead on strategic partnerships with Microsoft and Scientific-Atlanta to deliver the software and set-top boxes needed for DSL service (over existing twisted copper pair lines) to the home.[16] To provide content for its full service IPTV system, SBC has established partnerships with satellite provider EchoStar. SBC currently pushes EchoStar’s Dish TV to its subscribers to achieve a pseudo-triple play effect, but could transition to providing Dish content over its own infrastructure as its “Project Lightspeed” comes into fruition.[17]

IPTV is not just an American phenomenon. A recent trend report from Informa Telecoms and Media indicates that by the end of 2005, 2.7 million people globally will subscribe to IPTV services, making IPTV a credible threat to cable and satellite with 25.9 million projected subscribers in 2010. According to this study, Hong Kong is currently the largest market for IPTV, followed by the United States and France. By 2010, China will have eclipsed all other markets, with the United States and Japan trailing.[18]

Failure to capture the home consumer market with video services would not necessarily be the end of IPTV, though it would be a defeat for telephone players still smarting from unsuccessful forays into cable broadcasting. Exploration and investment in IPTV from Microsoft, Motorola, Cisco, Alcatel and Siemens ensure that the advantages of IPTV for business and education applications will not go unmentioned. Distance learning, video conferencing and off-site training are all potential uses for video over IP. But challenges exist. Below is a brief discussion of the economic, regulatory, and social issues that will affect the implementation of IPTV.

Economic Issues

SBC has passed on bringing fiber directly to homes and businesses for now, but it must still invest in fiber optic cabling to increase the robustness of its network between cities, and to bring services further into neighborhoods. Verizon is investing heavily in fiber infrastructures. All of this new fiber is expensive, and requires that manufacturers see adequate demand in order to produce a new product at competitive rates. To this end, BellSouth, SBC and Verizon agreed in May of 2003 on technical specifications that would standardize fiber.[19] With a common standard, manufacturers can now compete to provide materials to the telephone companies, moving past the phase of competing with each other to make their standard dominant. Lack of a common standard was cited as one of the two critical problems in making IPTV a reality by former FCC Chairman William E. Kennard addressing the 2000 Consumer Electronics Show.[20] With Microsoft emerging as the standard bearer for the operating platform, compatibility in operating systems even less of an issue.[21]

The second barrier suggested by Kennard was one of assured copyright protection. This is addressed by the closed nature of the telco networks, and through Microsoft’s cooperation in set-top box technology. Content aggregation continues to be a central issue. Cable and satellite’s vertical integration with content providers will be a challenge to overcome if IPTV hopes to offer a package attractive enough to lure new subscribers to their offerings. According to a recent Knight-Ridder Tribute Business News piece, 85 percent of households already subscribe to either cable or satellite, so IPTV’s primary opportunity to grow will be at the expense of cable and satellite operators.[22]

Regulatory Issues

In order to advance IPTV as a true competitor to cable, telephone companies will have to win the same types of franchises to offer services that cable companies receive from local municipalities. To do a brisk roll-out of their services, Verizon and SBC became convinced that the local franchise requirement would have to change, and proceeded to lobby state and federal legislators to eliminate franchising altogether. Speaking to the Suffolk Nassau Chamber of Commerce, Verizon chief executive Ivan Seidenberg insisted that some franchise rules “make no sense,” and that they should be changed en masse.[23]

An example of this sort of change happened in Texas, where Verizon was piloting video service. Verizon and SBC were behind a bill in the Texas legislature which cleared the way for statewide franchising of telephone-company video services.[24] The successful piece of legislation excuses phone companies from undertaking the time-consuming process of working through the municipal process to receive permission to provide video services in each community. Telephone company players will now take this strategy to other states, promoting it as a quick route to competition, with the argument that this is the best way to relieve consumer gripes about poor cable service.[25]

Social Issues

The on-demand nature of IPTV poses a brave challenge to the way people view television. In the past, the one-way nature of television has required a type of appointment viewing, scheduling around programming or planning to record it. The advent of the VCR embedded this practice to some degree but digital video recorders and on-demand programming threaten to put the final nail in the coffin of this style of viewing.[26] Several issues could thwart on-demand IPTV programming. IPcasters will have to focus on:

• Making enough content available to satisfy users’ demands for choice;
• Ensuring adequate bandwidth speeds to satisfy a viewer’s desire to “surf” channels in addition to choosing a program from the program guide; and
• Making rates low enough that viewers will feel comfortable “zoning out” to a program (instead of feeling that buying a program is not worth the cost).

On-demand programming does have its strengths, the foremost of which is serving niche markets. Adult entertainment has been a driving force in the adoption in much video technology.[27] This, and other targeted materials with specific appeal, could speed IPTV adoption. Special event programming, lifestyle programming and educational and distance learning could also fill niches that are not adequately addressed by cable and satellite television.

Conclusion

A number of challenges confront IPTV triple play providers in their effort to compete with cable’s video services. How telephone companies negotiate the maze of regulators, content providers, equipment manufacturers and consumers will ultimately determine the success of this medium. While peripheral applications for business and education exist, the golden promise of libraries of video on-demand material is still a ways off, and will require a convergence of factors to become a reality. In charting this course, while facing increasing competition from cable providers in their “home turf” of local and long distance telephony, telephone companies would do wise to heed the advice of former FCC Chairman Kennard:

Solutions are owed as a matter of service to customers, but the technological and fiscal feat of achieving triple play with IPTV could reap reward rich enough to justify investigations of this new possibility.

Endnotes

[1] Atkin, David and Lau, Tuen-yu and others, eds., “Local and Long Distance Telephony,” in Communication Technology Update, Burlington, MA: Focal Press, 2004, p. 265.

[2] “The War of the Wires,” The Economist, Vol. 376, Issue 8437, July 30, 2005.

[3] Berquist, Lou and others, eds., “Broadband Networks” in Communication Technology Update, Burlington, MA: Focal Press, 2004, pp. 277-278.

[4] Flournoy, Don M., The Broadband Millennium: Communication Technologies and Markets, Chicago, IL: International Engineering Consortium, 2004, p. 65.

[5] “Broadband TV: Time Warner Debuts TV Via PC," CableFAX, July 14, 2005.

[6] Yuxing InfoTech Holdings Ltd., “Products: Telecommunications IPTV System Solution,” 2005.`

[7] “U.S. broadband Internet Use Tops 61 Percent,” Reuters News Service, September 28, 2005.

[8] “Telephone Companies Set to Offer TV Services using Internet Protocol," Knight-Ridder Tribune Business News, July 3, 2005.

[9] Ibid.

[10] Flournoy, Don M., The Broadband Millennium: Communication Technologies and Markets, Chicago, IL: International Engineering Consortium, 2004, 75.

[11] Berquist, Lou and others, eds., “Broadband Networks” in Communication Technology Update, Burlington, MA: Focal Press, 2004, 279.

[12] Verizon News Release, “Verizon Brings Fiber to Consumers and Small Business in 24 New Jersey Communities,” March 9, 2005.

[13] Ibid.

[14] "Net-Based Technology Would Allow Limitless TV," Knight-Ridder Tribune Business News, July 14, 2005.

[15] Cauley, Leslie, "SBC's $4 Billion Investment into IPTV 'Not Much Money," USA Today, August 17, 2005.

[16] "Microsoft in Venture to Develop Internet TV," Knight-Ridder Tribune Business News, August 30, 2005.

[17] "A Clearer Signal for Telco TV? Microsoft's IPTV Sparks Interest from Providers but Technology Challenges Remain," America's Network, no. 13, September 1, 2004, p. 14.

[18] Informa Telecoms & Media Press Release, “IPTV to challenge existing pay TV platforms,” August 12, 2005.

[19] Bensinger, Ari, "A Foot in the Door of Wired Homes," Business Week, November 14, 2003.

[20] Kennard, William E. “IPTV: From the Vast Wasteland to the Vast Wonderland,” Address to the Consumer Electronics Show, Las Vegas, NV, January 7, 2000.

[21] Greene, Jay; Green, Heather, and Reinhardt, Andy, "Microsoft may be A TV Star Yet," Business Week, no. 3919, February 7, 2005.

[22] "Net-Based Technology Would Allow Limitless TV," Knight-Ridder Tribune Business News, July 14, 2005.

[23] Harrington, Mark, “Verizon Set to Launch FiOS,” Newsday, September 22, 2005.

[24] "Telco IPTV Franchise Bill Passed in Texas, " XDSL News, no. 8, August 2005, p. 3.

[25] Harrington, Mark, “Verizon Set to Launch FiOS,” Newsday, September 22, 2005.

[26 Wingfield, Nick and Saranow, Jennifer, “TiVo Tunes in to its Users’ Viewing Habits,” Wall Street Journal, Vol. 243, Issue 27, February 2, 2004.

[27] Swartz, Jon, “Online Porn Often Leads High-tech Way,” USA Today, March 9, 2004.

[28] Kennard, William E. “IPTV: From the Vast Wasteland to the Vast Wonderland,” Address to the Consumer Electronics Show, Las Vegas, NV, January 7, 2000.

Selected Bibliography

"A Clearer Signal for Telco TV? Microsoft's IPTV Sparks Interest from Providers but Technology Challenges Remain," America's Network, no. 13, September 1, 2004. Business and Industry online database (BI).

Atkin, David and Lau, Tuen-yu and others, eds., “Local and Long Distance Telephony,” in Communication Technology Update, Burlington, MA: Focal Press, 2004.

Bensinger, Ari, "A Foot in the Door of Wired Homes," Business Week, November 14, 2003. Academic Search Premier online database (ASP).

Berquist, Lou and others, eds., “Broadband Networks” in Communication Technology Update, Burlington, MA: Focal Press, 2004.

“Broadband TV: Time Warner Debuts TV Via PC," CableFAX, July 14, 2005. BI.
Cauley, Leslie, "SBC's $4 Billion Investment into IPTV 'Not Much Money," USA Today, August 17, 2005. ASP.

Flournoy, Don M., The Broadband Millennium: Communication Technologies and Markets, Chicago, IL: International Engineering Consortium, 2004.

Greene, Jay; Green, Heather, and Reinhardt, Andy, "Microsoft may be A TV Star Yet," Business Week, no. 3919, February 7, 2005. ASP.

Harrington, Mark, “Verizon Set to Launch FiOS,” Newsday, September 22, 2005, http://www.newsday.com/business/printedition/ny-bzveri4436625sep22,0,860280. story?coll=ny-business-print.

Informa Telecoms & Media Press Release, “IPTV to challenge existing pay TV platforms,” August 12, 2005, http://www.informatm.com/marlin /20001001561/ ARTICLEVIEW/mp_articleid/ 20017308306/mp_pubcode/IMG_press/media/true.

Kennard, William E. “IPTV: From the Vast Wasteland to the Vast Wonderland,” Address to the Consumer Electronics Show, Las Vegas, NV, January 7, 2000, http://www.fcc.gov/Speeches/Kennard/2000 /spwek001.html.

"Microsoft in Venture to Develop Internet TV," Knight-Ridder Tribune Business News, August 30, 2005. BI.

"Net-Based Technology Would Allow Limitless TV," Knight-Ridder Tribune Business News, July 14, 2005. BI.

“SBC Committed to IPTV,” Online Reporter, no. 449, June 18, 2005. BI.
Swartz, Jon, “Online Porn Often Leads High-tech Way,” USA Today, March 9, 2004, http://www.usatoday.com/money/industries /technology/2004-03-09-onlineporn_x.htm.

"Telco IPTV Franchise Bill Passed in Texas, " XDSL News, no. 8, August 2005. BI.

“Telephone Companies Set to Offer TV Services using Internet Protocol," Knight-Ridder Tribune Business News, July 3, 2005. BI.

"The Tale of Three Telcos," Online Reporter, no. 454, July 30, 2005. BI.

“The War of the Wires,” The Economist, Vol. 376, Issue 8437, July 30, 2005. ASP.
“U.S. Broadband Internet Use Tops 61 Percent,” Reuters News Service, September 28, 2005, http://today.reuters.com/business /newsArticle.aspx?type=telecomm&storyID= nN27260854.

Verizon News Release, “Verizon Brings Fiber to Consumers and Small Business in 24 New Jersey Communities,” March 9, 2005, http://newscenter.verizon.com/proactive/ewsroom/release.vtml?id=89701.

Wingfield, Nick and Saranow, Jennifer, “TiVo Tunes in to its Users’ Viewing Habits,” Wall Street Journal, Vol. 243, Issue 27, February 2, 2004. ASP.

Yuxing InfoTech Holdings Ltd., “Products: Telecommunications IPTV System Solution, ” 2005, http://www.yu-xing.com/telecom.htm.